UPDATE 2-TomTom lowers outlook, renegotiates debt terms

* Renegotiates Tele Atlas loan conditions

* Cuts volume sales outlook for 2008

* Shares flat, but outperform sector index

(Adds detail, background, shares, analyst comment)

By Harro ten Wolde

AMSTERDAM, Oct 28 (Reuters) - Dutch navigation systems company TomTom (TOM2.AS) on Tuesday lowered its 2008 outlook due to the weak economy as it reported a third-quarter operating profit that was flat but beat expectations.

TomTom also said it had renegotiated terms on the loan it took out to buy Dutch digital map maker Tele Atlas, reassuring investors who feared that the company may need a dilutive share issue to raise capital and meet the covenants.

In choppy trade, TomTom shares initially rose as much as 13.8 percent but were nearly unchanged at 5.765 euros by 0904 GMT. They still outperformed the DJ Stoxx European Technology index .SX8P that was down 3.6 percent.

Shares in Europe's biggest maker of navigation devices have fallen steadily over the past year and trade near all-time lows; TomTom's market capitalisation has dropped below 800 million euros ($1 billion), a fraction of the 2.9 billion euros it paid for Tele Atlas.

TomTom said it agreed to pay a higher interest rate on its renegotiated loan "in order to provide additional headroom in the current macro environment", adding it had never been in breach of the bank covenants, details of which it didn't give. TomTom's net debt to core earnings ratio was 3.1 at the end of the third quarter.

"They are understanding the game and doing the right things, but the question remains in the air, what about 2009, will they stay in the renewed debt covenants? It is a relief rally, but if we have seen the bottom is still open to debate," said Rabo Securities analyst Frits de Vries.

TomTom's main rival, U.S. market leader Garmin (GRMN.O), reports results on Wednesday and is similarly expected to cut its earnings and revenue outlook. [ID:nLR313245]

SLOWER PACE

Third quarter earnings before interest and tax (EBIT) were 92 million euros ($115 million), beating average analyst expectations of a 16 percent fall from the second quarter to 77 million euros as it managed to cut more costs, boosting the gross margin. [nWEA4311]

"Despite the weakening state of the global economy we expect demand for navigation solutions to continue to grow, albeit at a slower pace than stated earlier," TomTom said in a statement.

Portable navigation devices were one of the fastest-growing consumer electronics categories in recent years, but also have not been tested yet in an economic downturn.

TomTom said it expected 2008 navigation device sales of between 12 million and 13 million units, down from a previous guidance of 13 million to 14 million units and below the most recent analyst consensus of around 13.8 million.

The group's revenue is expected to be between 1.75 billion euros and 1.85 billion, down from previous guidance of 1.95 billion to 2.15 billion euros and also below consensus, which stands at 1.93 billion euros. (Editing by Quentin Bryar and Simon Jessop)